Minister of Finance Annika Saarikko (Centres) reacted during the final plenary session of the spring term in the Parliament House in Helsinki on 28 June 2022. Saarikko on Wednesday conceded that significant income tax cuts may not be possible in the present economic situation, particularly if labour market organisations fail to exercise moderation on wage increases. (Markku Ulander – Lehtikuva)


THE TAXATION of wages and pensions can be lowered only if labour market organisations settle on moderate wage increases, estimates Minister of Finance Annika Saarikko (Centre), reports Helsingin Sanomat.

“An income tax break is still on the table. It’s important, though, to tie its implementation to the risk of recession looking large and us being assured that labour market organisations reach rational wage deals,” she stated in conjunction with the budget negotiations of the Ministry of Finance on Wednesday.

“Now we need mutual trust.”

Saarikko pointed out that the combination of substantial wage increases and income tax cuts would be dangerous in that it could further accelerate the rise in consumer prices.

Juha Majanen, a permanent state secretary at the Ministry of Finance, on Wednesday defined moderate wage increases as increases that align with the expected rate of inflation next year. The rise in consumer prices is presently forecast to slow down to around three per cent in 2023.

The key question in the negotiations is whether, to what extent and how households should be compensated for the rise in consumer prices.

Saarikko told Helsingin Sanomat in mid-June that the government would decide on income tax cuts in its budget session to bolster the purchasing power of households. She has since realigned herself with the views of ministry officials in viewing that the government should forgo decisions on tax cuts early in the autumn and impose conditions on them.

She also remains critical of the idea of lowering taxes on food or petrol, estimating that significant tax cuts in general may not be rational from the viewpoint of the public economy. Smaller tax incentives, such as extending the increase in the maximum tax deduction for work-related travel expenses, are worth discussion, however.

“We’re currently very reserved about using debt to make tax cuts on a large scale. There are plenty of uses for tax revenues in an ageing country.”

Saarikko revealed that she has asked officials to explore means to respond to the rise in electricity prices, underlining that responding to energy-driven inflation is challenging especially in the present context.

“No one has the right or certain answers. We’re evaluating all tools in these times. We won’t be able to make decisions that’d eliminate the upward trend in prices. But we do have to make sure that our measures are at least not worsening the rise in measures,” she commented.

The Ministry of Finance will finalise its budget proposal on Thursday and publish it on Friday. The government will convene for its budget session at the turn of August and September.

Saarikko tweeted yesterday evening that she is proposing that all families with children be paid an additional instalment of child benefits at the end of the year to alleviate the financial strain caused by rising food, energy and transport prices. The measure, she estimated, would not necessitate additional borrowing and could be funded from a supplementary budget.

“The rise in food, energy and transport costs has tested families with children, who spend most of their earnings on keeping their daily life on track,” she wrote. “Child benefits are not tied to an index, meaning the benefits do not not rise automatically with the cost of living unlike many other benefits.”

The Finnish government has already taken action to help households to cope with the rise in consumer prices.

The situation of pensioners and other income-transfer recipients was eased by raising social security benefits based on the national pension index at the beginning of August. The maximum amount of tax deductible work-related travel expenses has similarly been increased for this tax year on a temporary basis.

Aleksi Teivainen – HT